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Wednesday 03.01.2017

Soaring pension costs still crippling Phoenix budget

Phoenix's city budget has become a paradox: The city has more money flowing into its treasury than ever before, but faces the prospect of deficits year after year.

City officials say the culprit most to blame is skyrocketing employee-pension costs. In the next year, Phoenix faces sticker shock from its payments to the state-run pension system for police officers and firefighters. Costs are expected to balloon by $58 million, bringing the city's total pension tab up to $294 million of its general fund.

That means almost a quarter of all the money the city spends on its day-to-day operations will go toward pensions alone. The impact to taxpayers is significant. Soaring retirement costs squeeze funding for other services. For example, the city is hiring more police, but cannot afford to hire enough officers to rebuild its shrunken force to pre-recession levels.

Phoenix also is struggling to find money to replace outdated city vehicles, such as patrol cars and firetrucks, and fully implement a police body-camera program.

Car Dealer's First Overflow Lot in 37 Years Exposes U.S. Pileup

For the first time in his 37 years working at New Jersey car dealerships, Larry Kull had to rent extra space to store unsold new Honda vehicles -- one of the latest signs that the record U.S. auto market is cooling.

Across dealer lots in America, inventory is piling up as automakers produce more cars than are being bought. Dealers had about 85 days worth of cars and trucks on hand at the beginning of February -- about 22 days more than at the beginning of 2017 and eight days more than a year earlier, according to Automotive News Data Center.

“The sales are good, I just have more product on the ground than I’ve had before,” said Kull, who has about 60 days of passenger cars including Civic compacts and Accord sedans stocked at an office parking lot down the road from his Honda store in Marlton, New Jersey. He prefers to have just 45 days worth of cars on hand.

The buildup suggests automakers will have to cut back production or boost discounts as the market’s record growth spurt peters out. Analysts project automakers’ sales slowed this month to a seasonally adjusted annualized rate of 17.5 million light vehicles, according to a Bloomberg News survey, from 17.7 million a year earlier.

Hershey is cutting 15% of its workforce

Hershey is cutting about 15% of its global workforce, mostly outside of the US. The chocolate maker said in a statement Tuesday that the move is part of a multiyear program to improve profitability.

Hershey said it expects the program to incur pre-tax charges of $375 million to $425 million, and provide between $80 million and $100 million in benefits from the layoffs.

"Our objective is to ensure that we always have the right level of innovation, marketing plans and consumer and customer expertise to drive net sales growth, especially in our North America confectionery and snacks business," said Michele Buck, the incoming CEO.

Hershey's shares fell by as much as 7% in after-hours trading following the announcement. Hershey plans to explain more to investors at a conference on March 1.

Target Unveils a $7 Billion Fix for Its ‘Old and Tired’ Stores

Target CEO Brian Cornell admits that a lot of his stores leave a lot to be desired.

The executive, trying to reassure Wall Street analysts at an annual meeting on Tuesday after the retailer announced a lower than expected 2017 profit forecast, said Target will spend $7 billion on improving its e-commerce and stores over the next three years. A good chunk of that will go to sprucing up many of its stores, as well launching new brands and cutting prices.

"Some buildings just don't reflect the brand—we have some old, tired stores that haven't been updated in years," Cornell told the analysts. Target will remodel 100 stores this year and 250 next year and hit 600 by 2019. It currently has about 1,800 stores, many of which were opened decades ago.

Target spooked investors when it announced big profit-sapping investments in store upgrades, new stores, better e-commerce, and lower prices to better withstand its price war with Walmart: the retailer forecast full-year earnings of $3.80-$4.20 per share from continuing operations, while analysts' on average were expecting its profit to top $5.00, according to Thomson Reuters.

Ex-Barclays traders put money before honesty, UK court hears

Two former Barclays traders were driven by the desire for money and showed scant regard to honesty and integrity when they conspired to rig global Libor interest rates, a lawyer for the UK Serious Fraud Office told a London jury trial on Tuesday.

Stylianos Contogoulas and Ryan Reich deny one count of dishonestly skewing Libor, a benchmark for interest rates on about $450 trillion of financial contracts and loans worldwide, to boost profits and defraud others between June 2005 and September 2007.

Emma Deacon, prosecutor for the SFO, said the men "essentially cheated" others when they schemed with London-based Libor submitters, responsible for sending the bank's daily cost of borrowing estimates to a Libor administrator, to try to ensure that U.S. dollar Libor rates would bolster their trading positions.

"So this case concerns traders at Barclays bank rigging, to their own advantage, or that of the bank, what is, in fact, a global benchmark interest rate," she told the jury on the first day of a six-week trial. "In doing so, they were driven by money. Their singular goal was to make more profit on their trading and you will see, insofar as they stood in the way, honesty and integrity were matters which were entirely expendable."

Massive Amazon cloud service outage disrupts sites

Amazon didn't, quite, break the Internet Tuesday but a more than four-hour problem at one of the main storage systems for its AWS cloud computing company did cause headaches for hundreds of thousands of websites across the United States.

A big portion of Amazon Web Services' Amazon S3 system went offline Tuesday afternoon, a service used by 148,213 sites according to SimilarTech.

The outage appeared to have begun around 12:35 pm ET, according to Catchpoint Systems, a digital experience monitoring company. It involved a storage system for Amazon's S3 service on the east coast, US-EAST-1. Operations were fully recovered by 4:49 pm ET, Amazon said.

That system was the first of what now are three AWS regions in the United States. It is still the largest and is also where AWS rolls out new features, "so it's disproportionately big," said Lydia Leong, a cloud analyst with Gartner.

Poll: Most Americans Say Dems Hurting Party, Country with Anti-Trump Strategy

Most American voters agree that Democrats are hurting their party and the country in general by continuing to oppose everything President Trump does, a new Rasmussen Reports poll reveals.

Sixty-three percent (63%) of likely U.S. voters say it’s better for the country if Democrats try to work with the president, as opposed to just 29 percent who think it’s better for the country if Democrats oppose the president in every way possible.

Similarly, 63 percent think it’s better for the Democratic Party that Democrats cooperate with Trump. Twenty-nine percent (29%) disagree.

Even Democrats feel it’s better for both the country and their party to try to work with the president. Forty-six percent (46%) say it’s better for America that Democrats cooperate with Trump and 45 percent agree that working with Trump is better for the Democratic Party, optics and all.

Starbucks reputation plummets after refugee pledge

Europe’s Leaders Prepare for Crisis

This year will prove decisive for the eurozone. Between March and September, the Netherlands, France, and Germany will hold general elections whose outcomes will help determine the future of Europe's common currency. Italy, too, may hold a vote by the end of the year. In light of the uncertainty that awaits, the eurozone's major players are making moves to brace themselves for whatever the future brings.

In Italy, the government is hanging on by a thread. But no matter when the country holds its next general elections, the fact that almost half its electorate supports parties that want to leave the eurozone will put international markets and eurozone governments on edge. The concern will be even greater since rebel members of Italy's center-left Democratic Party announced Saturday that they had formed a new political party, which could undermine the ruling party's performance against the Euroskeptic Five Star Movement in the next vote. France's highest-polling party, the National Front, also wants to hold a referendum on eurozone membership.

Meanwhile, the threat of a Greek exit from the European Union looms large. Athens recently promised to implement economic reforms to receive its next tranche of bailout money, but some of the measures involve politically sensitive issues, such as pensions and labor regulations, and could trigger political instability or social unrest. Because Greece's coalition government holds only a slim majority of the seats in Parliament, it could collapse if even a few lawmakers were to change their allegiances. And early elections in the country could turn into a referendum on eurozone membership.

Now that most of Greece's debt is in the hands of its institutional lenders, a Grexit from the eurozone would not be as calamitous today as it would have been five years ago. Nevertheless, the upheaval it would create could spread to the eurozone's other weak links, including Italy and Spain. So soon after the Brexit, moreover, a Grexit would only deepen the European Union's turmoil and could influence elections elsewhere in the eurozone.

Economic growth lackluster at end of 2016 but stronger gains may lie ahead

The economy slowed in the fourth quarter as weaker business investment offset solid consumer spending, the government said Tuesday. Still, stronger gains may lie ahead.

The nation’s gross domestic product -- the value of all goods and services produced in the U.S. – grew at a seasonally adjusted annual rate of 1.9%, matching the initial estimate last month, the Commerce Department said. Economists were expecting an upward revision to 2.1% growth. While consumer spending grew a bit more rapidly than first believed, business investment and government spending advanced more slowly.

After nine months of sluggish gains, the economy grew at a 3.5% rate in the third quarter, a two-year high, before slowing to a pace more characteristic of the 7½-year-old recovery. For all of 2016, the economy grew 1.6%, below the 2.6% posted in 2015 and the recovery's tepid 2.2% average.

Many economists expect growth of about 2% in the first quarter followed by an expansion of 2.3% for 2017 and bigger gains in coming years if Congress passes President Trump’s proposed fiscal stimulus, which would include big tax cuts and infrastructure spending. Trump is expected to outline his plans in a speech before a joint session of Congress Tuesday evening.

OPEC Lost $2 Trillion In Oil Price Slump

OPEC members lost over US$2 trillion in revenues and capital expenditure in the oil price crash, the cartel’s director general Mohammed Barkindo said, speaking to media in Nigeria. About half of this was lost revenues as prices tumbled from over US$140 a barrel to below US$30, and the rest was wiped out as cancelled projects.

Barkindo warned that the loss in capital investments was particularly serious as it threatened the future security of oil supply. Acknowledging the economic diversification efforts of OPEC members that were forced on them by the price crash, Barkindo said the importance of oil in helping to achieve this diversification was not to be underestimated.

The OPEC chief was optimistic about the outcome of the group’s concerted market rebalancing effort that should take off some 1.8 million barrels per day from global supply. Indeed, prices have been climbing recently, albeit slightly, thanks to unexpectedly high compliance rates among OPEC members.

The only members that have not yet hit their reduction quotas are Iraq and the UAE, and both have pledged to catch up in the coming months. There is also the growing prospect of cuts being extended into the second half of the year, because of the counter-pressure that U.S. shale producers are applying to prices, which have curbed the upward potential of prices. In the week to February 17, shale producers boosted daily output to more than 9 million barrels.

On Russia, Democrats Are Just Asking Questions

Dodd-Frank reform is a this-year priority

House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, is at the forefront of reforming Dodd-Frank, spearheading one of the most prominent options to change the controversial act.

His position of authority brings a lot more weight to his recent comments during a CNBC interview where he stated that dealing with Dodd-Frank is a this-year priority. After CNBC questioned Hensarling on where Dodd-Frank stood in terms of priorities under President Donald Trump, he responded saying, “In every conversation I’ve had with the president, vice president and speaker, dealing with Dodd-Frank is a this year priority.”

He added that financial reform comes behind dealing with Obamacare and tax reform. After barely being mentioned during election season, housing quickly got pushed to the top of the pile once President Trump took office.

Earlier this month and within his first 100 days of presidency, Trump signed an executive order to begin the roll back the Dodd-Frank Wall Street Reform Act, and Hensarling was standing right next to him when he signed it. Not too long after Trump signed the executive order, a memo from Hensarling’s desk revealed an even more aggressive version of the Financial CHOICE Act, the Republican-led effort to repeal and replace Dodd-Frank, with the Consumer Financial Protection Bureau facing some of the most drastic changes.

San Diego home median price starts year under $500K

The San Diego County median home price was $495,000 in January, unchanged for three months, CoreLogic said. In October, the median hit $507,500 — its highest point in a decade — but has remained under half a million dollars since and pushed the nominal 2005 peak of $517,500 (or $644,487 in 2016 dollars) further out of reach.

January is typically the slowest month of the year, a lingering effect of buyers and sellers closing up shop for the holidays. There were 2,480 sales this January, up 4.6 percent from the same time last year.

Alan Gin, economist at University of San Diego, said a reason for the unmoved median home price could be rising interest rates since Donald Trump’s election victory and high prices. “While people want to buy houses, we’ve hit a big affordability problem,” Gin said. In 12 months, the county’s home price increased 7 percent.

The January resale house median was $537,500, with 1,628 sales, and resale condo median was $385,000 with 748 sales. Both medians were up roughly 6 percent in a year. The newly-built home median was up 25 percent in a year, to $615,000 in January.

Kaplan: Fed May Need to Raise Interest Rates in 'Near Future'

The U.S. Federal Reserve might need to raise interest rates in the near future to avoid falling behind the curve on inflation, Dallas Fed President Robert Kaplan said.

Kaplan, who is a voting member on the central bank's rate-setting committee this year, clarified a point he has made several times in recent weeks that a rate increase should come sooner than later.

"Sooner rather than later means in the near future," Kaplan told journalists after speaking at an event with university students in Norman, Oklahoma.

Kaplan did not specify at which policy meeting he thought the Fed should raise rates. Fed Chair Janet Yellen has cited the next three policy meetings - in March, May and June - as possible occasions for a rate increase. The Fed last raised rates in December and signaled that three further increases were likely in 2017.

Nomi Prins: Here's How to Prosper in the Age of Artisanal Money

“She began her discussion highlighting cash and the financial system by stating, “There is an outside group of central bankers… That have not just the ability but the wherewithal and lack of any understanding to decide how much the value of cash is. How much interest you can receive for keeping your cash at a bank – which is nothing. In fact, you actually pay money to banks for the luxury of keeping your money. For example, if you have an account at JPMorgan Chase and have less than $1000 in that account per year, you’re paying $240 a year in order to maintain your money in that account. Ultimately, that is 24% interest that you are paying in order to keep it in a bank – that’s ridiculous but is what has happened in the last ten years.”

Nomi Prins is a bestselling author of All the Presidents’’ Bankers and is currently working on her forthcoming book Artisans of Money, which will explore the coordinated efforts of global central banks since the financial crisis and the application of artisanal money today. Prins’ is a former Managing Director at Goldman Sachs and has worked at various major Wall Street banks before stepping out of the financial world to become an investigative journalist.

“The Federal Reserve has not just been pivotal in making sure that you gain no interest from money that is being kept in a bank, it has also made sure that throughout the world that the phenomenon exists. What that has does is create an artificial financial system that had not existed before the financial crisis.”

“It’s not just the government that is influencing banking policy, it is the private bankers who are directing the policy. Now that we have a renewed sense of power with the central banking system it is adding into that artificial stimulation, artificial subsidization and artificial money which is now our system.”

Migrant Apprehensions at Southern Border Up 132 Percent

While the apprehension numbers reported in January decreased slightly from December 2016, the comparison to the prior year’s numbers show Border Patrol agents are still dealing with massive numbers of illegal border crossers. Focusing on Unaccompanied Alien Children (UAC) and Family Unit Aliens (FMUA), the apprehensions over the prior year are even higher.

In January 2017, 4,421 UAC’s were apprehended along the southern border with Mexico. This compares to the prior year’s number of UAC apprehensions of 3,113–a 142 percent increase.

FMUA apprehensions in that same monthly comparison increased by nearly 300 percent. In January 2016, 3,145 FMUAs were apprehended after crossing the border between the ports of entry. This compares to 4,421 in January 2017–a 295 percent increase. Total apprehensions in January 2017 were 31,575, up from 23,767 the year before.

While many outlets are reporting the January numbers are down, that is only true in a month-to-month comparison. CBP numbers for January in years past have traditionally been lower than the prior month’s numbers.

Keiser Report: Breakdown in Liberal Ideology

The Jobs Robots Will Take First

Oxford University researchers have estimated that 47 percent of U.S. jobs could be automated within the next two decades. But which white-collar jobs will robots take first?

First, we should define “robots” (for this article only) as technologies, such as machine learning algorithms running on purpose-built computer platforms, that have been trained to perform tasks that currently require humans to perform. With this in mind, let’s think about what you’ll do after white-collar work. Oh, and I do have a solution for the short term that will make you the last to lose your job to a robot, but I’m saving it for the end of the article.

Middle Management - If your main job function is taking a number from one box in Excel and putting it in another box in Excel and writing a narrative about how the number got from place to place, robots are knocking at your door. Any job where your “special and unique” knowledge of the industry is applied to divine a causal relationship between numbers in a matrix is going to be replaced first. Be ready.

Commodity Salespeople - Unless you sell dreams or magic or negotiate using special perks, bribes or other valuable add-ons that have nothing to do with specifications, price and availability, start thinking about your next gig. Machines can take so much cost out of any sales process (request for proposal, quotation, order and fulfillment system), it is the fiduciary responsibility of your CEO and the board to hire robots. You’re fighting gravity …

March 2017: The End Of A 100 Year Global Debt Super Cycle Is Way Overdue

For more than 100 years global debt levels have been rising, and now we are potentially facing the greatest debt crisis in all of human history. Never before have we seen such a level of debt saturation all over the planet, and pretty much everyone understands that this is going to end very, very badly at some point. The only real question is when it will happen. Many believe that the current global debt super cycle began when the Federal Reserve was established in 1913. Central banks are designed to create debt, and since 1913 the U.S. national debt has gotten more than 6800 times larger. But of course it is not just the United States that is in this sort of predicament. At this point more than 99 percent of the population of the entire planet lives in a nation that has a debt-creating central bank, and as a result the whole world is drowning in debt.

When people tell me that things are going to “get better” in 2017 and beyond, I find it difficult not to roll my eyes. The truth is that the only way we can even continue to maintain our current ridiculously high debt-fueled standard of living is to grow debt at a much faster pace than the economy is growing. We may be able to do that for a brief period of time, but giant financial bubbles like this always end and we will not be any exception.

Barack Obama and his team understood what was happening, and they were able to keep us out of a horrifying economic depression by stealing more than nine trillion dollars from future generations of Americans and pumping that money into the U.S. economy. As a result, the federal government is now 20 trillion dollars in debt, and that means that the eventual crash is going to be far, far worse than it would have been if we would have lived within our means all this time.

Corporations and households have been going into absolutely enormous amounts of debt as well. Corporate debt has approximately doubled since the last financial crisis, and U.S. consumers are now more than 12 trillion dollars in debt.

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